Motivation Key to Better Saving Behaviors

A Prudential survey of 690 employees
between the ages of 21 and 64 who are eligible for their employer-sponsored
retirement plan found that 88% believe contributing to retirement savings is a
must. However, there is a gap between this belief and their ability to do so.
Fifty-seven percent do not believe they can save enough for
retirement.

Prudential’s research paper,
“Turning Employees Into Lifetime Savers,” says behavioral motivational theory
demonstrates that changes to close the gap between employees’ attitudes towards
saving and their actions are possible and can be long-lasting. These changes
are optimally sustained when certain motivational conditions are present,
including when:

People genuinely value the goal to which they aspire at
a personal level;

People internalize the reasons for which they pursue
that goal and start acting to achieve values for their own sake and right
(vs. taking action due to feeling “pressure” or guilt/obligation); and

People genuinely enjoy the pursuit of the goal, such as
feeling closely connected to others during the process or discovering
interesting new opportunities to grow and take pleasure in life.

Using its research, Prudential
developed the Lifetime Saver Commitment Profile, a scientific index that
captures individuals’ quality of motivation, engagement and satisfaction with
savings and retirement planning over time. The results show most employees in
America (67%) are moderately motivated to save for retirement. Only one in 10
(13%) employees eligible to participate in an employer-sponsored retirement
plan is highly motivated, while motivation naturally increases as employees get
closer to retirement age.

This relatively small group of
employees who are highly motivated to save for retirement includes a higher
proportion of women, older employees and more highly educated people who have
been in the work force for a long time. Fifty-seven percent of those with the
highest motivation to save are female. The median age of the most highly
motivated is 50, and their median number of years in the work force is
25.

Nearly all in the high motivation
group (95%) are proud of what they have put away to date and plan to continue
making contributions: Forty percent expect to contribute between $2,500 and
$9,999 in 2012, and 36% anticipate contributing more than $10,000. This rate of
savings is important since the majority (57%) feel they will need to save
$500,000 or more by the time they retire.

Most of this highly motivated group (69%) reviews their
retirement accounts at least once every month. Only 40% of less motivated
employees review their retirement accounts at least monthly. Overall, those
with a lower motivation to save are much less likely to save (58%), compared
with those that have the highest motivation to save (80%). The strong
relationship between lifetime saver motivation and real retirement savings and
readiness indicates an opportunity for employers to focus on improving employee
motivation.

The survey shows employer guidance
matters. When asked to grade their employers’ retirement plans, only 6% of the
highly motivated gave their plan a “C,” assessing their plan as “sub-par.” By
contrast, more than three times that number among the lower motivated group
(21%) gave their plan a grade of C or lower. In addition, the highly motivated
group describes their employers’ retirement plans very differently from the way
in which those with a lower motivation to save do—regardless of gender, age,
income, assets and debt.

Among the group with the highest
motivation to save, 89% say their retirement plan helps keep them focused on
their retirement savings, versus 69% of those with lower motivation. Only 22%
say their retirement plan is complicated, versus 54% of those with lower
motivation. In addition, 92% of the group with the highest motivation report
their retirement plan has investment choices that are easy to understand,
compared to 69% of those with lower motivation.

This indicates plan sponsors can
help motivate their employees to take action to save for retirement by keeping
employees engaged, removing barriers to saving and making retirement savings
easy.

The Lifetime Saver Commitment Profile helps employers understand
what motivates people to take charge of their financial future and further
assists in customizing communication and education strategies. Based on this
work, Prudential said it is in the process of developing a suite of solutions
to support clients in building greater participation, savings and satisfaction
in their employees.